Forex Trading

Top MACD Trading Strategies

By September 8, 2022 January 3rd, 2023 No Comments

Now, let’s move on to the incredible MACD strategy we developed for our traders. We will show you how to use MACD effectively, what a true trend indicator looks like, and a super profit indicator. You’ll also learn why we think the MACD indicator is the best trend following indicator. Here is another strategy called, The PPG Forex Trading Strategy. Is a solution for these problems, because it is delayed and this delay forces you to wait more, both when you are waiting for a trade setup, and when you are holding a position.

The supplementary rules help you identify more conservative entry points which occur with low frequency. But in a nutshell, if you exclude the supplementary rules, you are taking more aggressive trading setups. Hence, the examples in this section will not just show you entry points using the MACD.

The MACD indicator provides a myriad on signals, which makes it useful as a good standalone tool, but the best results come when the indicator is combined with price action analysis. If you are opening a long trade, you could place your stop loss below a previous bottom on the chart. If you trade short, then you could place your stop loss order above a previous top. If the price action creates a lower low on a long trade, or higher high on a short trade, your position will be closed automatically. The MACD histogram crosses the moving average in the same direction. The recommended stop loss level is set below the minimum level of the candlestick that determines the entry point and is above the maximum level when selling.

  • It consists of a histogram and two lines derived from moving averages.
  • The MACD indicator is used to identify when a security is overbought or oversold, as well as to identify the direction of the trend.
  • A bullish divergence appears when MACD forms two rising lows that correspond with two falling lows on the price.
  • The results indicate the best parameters are somewhat in the vicinity of the default settings.

There are a few more confirmations that are needed to confirm the same. A downtrend does not turn into an uptrend instantly and vice versa. And a divergence on MACD can give hints and clues that the market is preparing to start a new trend. That’s why we have developed a free MACD Divergence indicator that automatically plots regular and hidden divergences on the chart. The ideal stop-loss for such trades would be few pips below the Support/Resistance level.

Earn your way to flexible terms, cutting edge platform, and a dedicated conversion specialist. If you would like to contact the Bullish Bears team then please email us at bbteam[@] and we will get back to you within 24 hours. The CAGR is 4.79%, the average gain per trade is 0.95%, the profit factor is 4.22, and the maximum drawdown is 16%. This shows some promise, and it works pretty well on several other ETFs as well. If the above three criteria are true, then enter at the close.

Top MACD Trading Strategies

Traders who have entered into long positions can exit the trade at the next bearish crossover , protecting the trader from losses that could occur if there is a reversal. A trader with a long position could look to exit the position at this point, however it could just be a temporary pullback. When the bearish crossover occurs, traders could look for the signal line to cross below the zero line, confirming the downward trend. As outlined on the chart, a trader could look to enter a long position at the first highlighted MACD crossover. At this point the MACD line is above the signal line and the price is still trading above the 200-day MA. MACD trading crossovers are one of the most popular MACD trading strategies, especially when you trade penny stocks.

macd trading strategy

MACD indicator can be used to trade forex, cryptocurrency, and stocks and is one of the best day trading indicators available on tradingview. This video will show you how to trade macd indicator using this macd crossover strategy to help become a better trader. This bullish crossover suggests that the price has recently been rising at a faster rate than it has in the past, so it is a common technical buy sign. The Moving Average Convergence Divergence is a lagging indicator used to locate trends within the market. It consists of a histogram and two lines derived from moving averages. It is important to note that the moving averages used are exponential, and thus will give greater weight to more recent price action.

Technical Analysis Using MACD

One of the main problems with a moving average divergence is that it can often signal a possible reversal, but then no actual reversal happens—it produces a false positive. The other problem is that divergence doesn’t forecast all reversals. In other words, it predicts too many reversals that don’t occur and not enough real price reversals. MACD can help gauge whether a security is overbought or oversold, alerting traders to the strength of a directional move, and warning of a potential price reversal.

macd trading strategy

Crossovers are more reliable when they conform to the prevailing trend. MACD measures the relationship between two EMAs, while the RSI measures price change in relation to recent price highs and lows. These two indicators are often used together to give analysts a more complete technical picture of a market. However, you will need to be more careful about picking your trades. The reason for this is that the markets tend to be more choppy on shorter timeframes like the 1-minute and 5-minute charts. MACD trading strategies can be used for both intraday trading and swing trading.

The slow MACD line/the signal line

In such cases, we expect the bullish move to exhaust after the strong increase and a bearish move to appear. Although the MACD indicator consists only of three components it can provide a myriad of signals. We recognize six basic signals of the MACD and now we will discuss each of these separately. These two numbers concern the calculation of the faster MACD line. The difference between the two EMAs gives you the value of the faster line.

macd trading strategy

If you choose a lagging strategy, you’d have to be watching your MACD indicator a lot to receive the signals as quickly as possible. But if you chose a leading strategy, like the histogram, you might be able to spend less time monitoring your MACD, as the signals should present themselves ahead of time. This method should be used carefully, as the delayed nature means that fast, choppy markets would often see the signals issued too late. However, as a tool for providing reversal signals of long sweeping moves, this can be very useful. These levels hence become the overbought and oversold areas of that instrument.

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It then aims to ride this uptrend as long as possible before selling when the MACD signals the price is moving back into a downtrend. There is also the additional criteria that the price should be above the 200-period moving average to avoid taking trades against the direction of the major trend. Like all technical indicators, the settings of the MACD can be changed to different time periods but traders tend to prefer the defaults. The defaults are 12 and 26-periods for the EMAs, with the signal line as a 9-period EMA of the MACD line.

Yes even more so than forex since the price is driven by traders buying/selling and not controlled by HUGE banks. Now, that you already know how to enter a trade at this point you have to learn how to manage risk and where to place the SL. Our popularPrice Action Pin Bar Trading who created social security Strategy is a great introduction to what a pure price action strategy should look like. It can be also used in combination with the MACD Trend Following Strategy for a higher success rate. The MACD is one of the most powerful trend following and momentum indicator.

Histogram reversals

Hello, please edit the directions so that it says “Rules for a Buy Trade”. Right now it says “Rules for a Sell Trade” csn be veey confusing for beginners like myself. Tap on the E-Book Cover Below to get your copy of this Free strategy today.

Past performance is not necessarily indicative of future results. With these in-depth and varied trading examples, you’ve gained mastery over the pros and cons of the MACD indicator. You’ve also seen how this common indicator behaves in markets presenting different price action. Hence, once we got a positive crossover of the MACD, it presented a technical signal to go long. The first four signals are valid if you ignore the supplementary trading rules.

Also it is an Indicator a TA enthusiast gets introduced to first. The MACD is constructed by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. The MACD is considered to be a momentum oscillator though it is widely used by Trend followers. The chart shows how the price movement slowed down after a strong downtrend, reversed and then went down again, hitting a fresh low.

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